The Challenges of Starting a Small Company in Kuwait

EXECUTIVE SUMMARY

This business report explores entrepreneurs’ challenges when starting a small company in Kuwait. With Kuwait only obtaining 3% of the GDP from small enterprises, starting a small company still faces many barriers. Therefore, the nation’s overdependence on oil has shifted the interest in supporting and creating an enabling environment for the growth of small companies. Staring small companies in Kuwait would face restrictions on ownership, finding partners to have a joint venture, and slow bureaucracy decision-making, which are hindrances to growth and success. The time spent obtaining an operating license is as long as 41 days with reported corruption issues in government departments. Also, the education and experience levels limit the Kuwaitis from establishing small companies. Therefore, the government is mandated with creating a culture of entrepreneurship to cultivate investing spirit.

INTRODUCTION

This report evaluates the challenges of starting a small company in Kuwait. Additionally, it is designed to differentiate the problems locals will encounter and the requirements for foreign investors to establish a business in Kuwait. Finally, the report focuses on how the government and the investors can overcome these challenges and establish small companies successfully. Therefore, the report is designed to respond to the following questions.

• What are the requirements for starting a small company in Kuwait?
• How are foreign and local investors disadvantaged by the legal and bureaucratic processes of establishing a company?
• What strategies is the government undertaking to create a friendly investment nation?

The organization of the report is as follows. First, the report starts with exploring the relevant background information and literature on the topic of challenges faced by starting a small company in Kuwait. Then, it evaluates the sources to find the relevant information in the analysis stage to give justice to the three guiding research questions by finding answers. Lastly, the report summarizes the main points and offers a proposed solution through recommendations.

BACKGROUND

The idea of the small business started way back in the 1600s when people were engaged in trading services, crops, and supplies. Since then, the sector has evolved, with many people depending on it as a source of livelihood. However, while small business enterprises contribute between 40% to 50% of the GDP in emerging and high-income economies, in Kuwait, the impact of small enterprises is marginal, with only a 3% contribution to GDP. Moreover, only around 24% of the Kuwaiti workforce is employed in SMEs, which is way less than people depending on small businesses in emerging and high-income economies by half. This presents a gap in successfully starting small companies in Kuwait, but there are still more challenges arising from the process.

Company success in a given country depends on economic, political, cultural, social, and environmental factors. Starting a small company in Kuwait is legible to face management and legal requirements challenges. Kuwait is open to a broad-based economy, but currently, the country is much dependent on oil. Therefore, to address these questions, we must focus on the policymakers, which can be achieved through effective management responses. Starting a company in Kuwait will face many problems, such as restrictions on ownership, finding partners to have a joint venture, and slow bureaucracy decision-making, among other imperative factors.

ANALYSIS

What are the requirements for starting a small company in Kuwait?

The management of the companies in Kuwait requires that the manager comes from GCC or be a Kuwaiti. Besides, the non-Gulf Cooperation Council (GCC) nationals are not permitted to own more than 49% of the company’s shares (Al‐Kazemi & Ali, 2002). Such restrictions can limit the small company’s growth, especially when a specified education level and experience are needed to run the business operations. The report published by the World Bank in 2014 shows that one of the barriers to starting small companies in Kuwait is the lack of adequate education (The World Bank, 2016). This poses challenges to company owners to realize substantive growth.

The government should allow the company owners to employ anyone they deem fit for the manager position without relying on nationality. Companies are operated differently, and they are unique in the products they offer to consumers. When one is dictated on whom to give what position in the company, the success of a starting business is in question. Besides, limiting the non-nationals to hold the manager position reduces the diversity in the market products and income for the country. Therefore, the restriction on shareholding and managing teams is a challenge for starting a company in Kuwait.

How are foreign and local investors disadvantaged by the legal and bureaucratic processes of establishing a company?

The bureaucracy and legal process of starting a company in Kuwait can be tiresome and lengthy. Moreover, the company requirement in Kuwait needs resources due to movements, and bribery issues have been reported in some cases. In addition, attaining all the certificates, documents, and other mandatory signatures can be a lengthy process that delays the establishment of the business. According to The World Bank (2016), the process takes an average duration of 41 days in Kuwait. Also, since finding a partner can be challenging, the requirement of having more than two people to establish a company can limit some people from starting small companies. Furthermore, persons with criminal records cannot start a small company in Kuwait (Kuwait Government Online, n.d). Besides, one cannot partner with an individual working with the national government at the time of establishing the company or afterward.

What strategies is the government undertaking to create a friendly investment nation?

The issue of the legal process can be tiresome when starting a business in Kuwait and can consume time when one has to attend to other duties (Al Bazie & Braganza, 2020). For example, the report shows that 14% to 20% of the manager’s time is consumed dealing with various government regulations (The World Bank, 2016). This wastes time that could be channeled into running the company to realize growth. The Mister of Commerce and Industrialization is working on ways to improve service delivery through online registration when starting a business. Also, the Kuwait government is working in collaboration with the UN climate charter to curb adverse climatic conditions that can impact outdoor small companies’ operations (Koch, 2011).

CONCLUSION AND RECOMMENDATION

Conclusively, starting a small company in Kuwait encompasses various challenges, including political will, bureaucratic requirements, ownership restrictions, and hot summer (environmental) factors. The requirement by the government to employ locals as managers might negatively impact the success of some ventures. Besides, getting all the certificate documents is tiresome and lengthy, which consumes time and resources. Therefore, the government should consider fixing these issues to create a conducive and friendly environment for investors to start small companies. I would recommend that:

• The government should create an enabling environment for small startup companies through capital support and less time to obtain operating licenses.
• Training is key to gaining knowledge and experience in establishing small companies in Kuwait.
• It is imperative to cultivate a culture of entrepreneurship among the Kuwaitis by organizing community events and interaction through online spaces between entrepreneurs.

References

Al Bazie, N., & Braganza, A. (2020). Challenges of change facing entrepreneurs and Kuwaiti SMEs. Cogent Business & Management, 7(1), 1853997. DOI: 10.1080/23311975.2020.1853997

Al‐Kazemi, A. A., & Ali, A. J. (2002). Managerial problems in Kuwait. Journal of management development, Vol. 21 No. 5, pp. 366-375. https://doi.org/10.1108/02621710210426853

Koch, E. (2011). Challenges to SME Development in Kuwait. UNDP/Kuwait. https://info.undp.org/docs/pdc/Documents/KWT/SME%20Challenges%20Final%20Report%20KUWAIT%20Nov%2011.pdf

Kuwait Government Online (n.d) Establishing a new company. https://e.gov.kw/sites/kgoenglish/Pages/Services/MOCI/EstablishmentNewCompany.aspx

The World Bank. (March 1, 2016). Building Kuwait’s Future, One Small Enterprise at a Time. https://www.worldbank.org/en/news/feature/2016/03/01/building-kuwait-future-one-small-enterprise-at-a-time